The fall in the Consumer Price Index to 4.5% has led Mortgages for Business to believe that rates will be cut further in December.

The buy-to-let broker has also stated that it wouldn’t be surprising if the Bank of England slashes a further 1% off Base Rate before the end of the year.

While the spread between LIBOR and Base Rate remains wide – three month LIBOR currently stands at 4.15% – mortgage rates will be slow to follow suit although the market is starting to see some improved pricing in residential mortgage rates. A couple of lenders this week have launched fixed rate mortgages at 3.99% and tracker rate mortgages are available from 4.39%.

David Whittaker, managing director at Mortgages for Business said: “Buy-to-let mortgage rates will be slower to return and it may not be until early next year when confidence returns to the money markets and lenders set their targets for lending in 2009. Rest assured, at Mortgages for Business we are in constant contact with all the main lenders and will send updates out to our clients as soon as there is some positive movement.”

After the Bank of England predicted yesterday that inflation could fall below 1% next year, the Liberal Democrats fear that we could be heading for zero interest rates, coupled with rising unemployment.

Liberal Democrat Shadow Chancellor, Vince Cable said: “It’s clear from the today’s figures that we’re heading for very high levels of unemployment with falling inflation. This could soon become negative inflation, with prices actually falling.

“The Governor of the Bank of England is right to say that interest rates will fall a lot further. We may find ourselves in a world of zero interest rates before too long.

“The actions we have urged, including drastic interest rate and tax cuts, now attract wide political support. However, the key problem is that despite the Government’s recapitalisation of the banks, the financial system is still completely gummed up.

“Ministers must consider more drastic action to ensure that credit flows on reasonable terms to solvent borrowers.”

Eight in ten mortgage lenders have failed to pass on the full benefit of the last three interest rate cuts to their customers, according to Moneyfacts. The news comes as HSBC announced it is unlikely to pass on any savings from the Bank of England’s expected base rate cut on Thursday.

Research by Moneyfacts found half of all lenders had not altered their standard variable rate (SVR) since the Monetary Policy Committee (MPC) made its surprise 0.5% rate cut in early October.

Furthermore, 82% have not helped their borrowers by passing on the full savings of the last three base rate cuts, equivalent to 1%.

Darren Cook, mortgage expert at Moneyfacts, says this may not be as bad as it seems, as many lenders have relatively low priced SVRs compared with their fixed rate offerings.

“In real terms, most lenders’ current SVRs are underpriced compared to the rest of the mortgage market,” he says, adding some current products have a revert rate lower than the initial rate.

“Base rate is expected to fall again next week and we could have a situation where even less or no lenders choose to pass on a benefit to their customers, in an attempt, in the short term, to allow falling interbank rates to catch up with their current rates.”

Evidence the next round of base rate cuts may have little benefit for mortgage lenders is already emerging, with HSBC saying it may not pass on any further base rate cuts to its mortgage customers.

Analysts are widely expecting decisive action from the MPC on Thursday, with a 0.5% cut seen as the most likely move in an attempt to improve consumer confidence and dampen the impact of a recession.

The Bank of England’s Monetary Policy Committee yesterday voted to keep the base rate at 5.0%.

Ray Boulger of John Charcol said: “After The Chancellor’s frank comments at the weekend that Britain is facing “arguably the worst” economic downturn in 60 years which will be “more profound and long-lasting” than people had expected, it is probable that the MPC discussed very seriously whether Bank Rate should be cut as early as today. However the current elevated level of the CPI, with further increases to come, will have been an obvious obstacle to this.”

“Because today’s no change decision by the MPC was widely expected the main focus will be on the minutes, published on 17 September, to see whether David Blanchflower was still a lone voice in voting for a cut and whether Tim Besley has at last recognised that an increase would be inappropriate as the economy rapidly deteriorates. Mr Blanchflower has already indicated that he expected to vote for a 0.5% cut and it is likely there was a three way spilt for the third month running, but this time with the votes being for no change, a 0.25% cut and a 0.5% cut.

RICS chief economist Simon Rubinsohn said: “The decision of the Bank of England to leave interest rates at 5% was to be expected in view of on-going concerns about the inflation outlook. However, with the push from commodity prices beginning to ease and little sign of any follow through from headline inflation into wage settlements, the Bank needs to shift its gaze towards the bleak outlook of the economy. Growth is set to contract during the second half of this year and with the credit crunch still firmly entrenched, the risk is that it will remain fairly flat during the early part of 2009.

“Against this backdrop, unemployment will begin to rise in a more pronounced fashion. If evidence continues to stack up against the ailing economy, a cut is conceivable at the October MPC meeting although November still seems the more likely option”.

Members of the rate-setting Monetary Policy Committee (MPC) were split three ways for the second consecutive month before opting to leave the base rate unchanged at 5% in July, MPC minutes reveal.

For the second time, Professor Tim Besley was the sole member of the Bank of England group convinced an immediate rise in interest rates was necessary to help keep “inflation expectations anchored to the target”. Headline inflation surged last month to 4.4%, more than twice the MPC’s object rate.

Besley’s backing for a rate increase was only the second time an MPC member had voted for a base rate increase in more than a year.

Conversely, David Blanchflower again backed a cut of 25 basis points, arguing there was a greater risk of undershooting the inflation target in the medium term due to “rapidly slowing activity”.

The remaining seven members maintained their assertion that the current rate was “broadly appropriate” and should remain at 5%.

Although the Bank predicts inflation will climb higher and is set to hit 5% in the next few months, it dampened expectations rates could rise by forecasting that inflation is more likely to subside and drop back to its target if rates were kept broadly unchanged.

The Bank of England Monetary Policy Committe voted today to keep the base rate at 5.0% for the fourth consecutive month.

Barry Naisbitt, chief economist at Abbey, said: “The Bank of England held rates at 5.00% today. Market commentators had expected no change this month, reflecting a mix of factors. Last month’s decision to hold rates had two dissenting votes, one for a rate cut and one for a rise. However CPI inflation has now reached 3.8% and is expected to rise further in the coming months.

“The Monetary Policy Committee (MPC) has clearly signalled its concern that higher inflation may feed through into elevated inflation expectations and so into continued high inflation. But there are increasing signs of slowing output growth. In these circumstances, leaving rates on hold is effectively bearing down on inflation. So the majority of MPC members must have judged that the most recent evidence of slowing economic activity provided a balance against the inflation indicators that are high and expected to rise further.

“The Inflation Report, which is published next week, should give some more information on how the MPC members judged the risks in what is a highly uncertain economic situation. If the slowing in economic activity is occurring more sharply than anticipated, and supports lower inflation in the medium term, a rate cut later this year or early next year, could still be on the cards. However, much will depend on how inflation develops in the coming months.”

Homeowners are being reminded to look far and wide when looking for a new mortgage, as analysis from moneysupermarket.com has shown that the average two-year tracker is looking increasingly better value.

moneysupermarket.com’s weekly credit crunch monitor shows there was little to choose from between the average two-year fix and the average two-year tracker at the start of June, but that the gap between the two has increased substantially since then. As of Monday this week, there was more than 0.5% worth of clear water between the two, with the average tracker standing at 5.9%, and the average fix at 6.45%; the last time trackers were this low was in March this year.

Louise Cuming, head of mortgages at moneysupermarket.com, said: “In the current environment of uncertainty, it’s natural to look to fixed rate deals to provide security but our data clearly shows that it’s imperative to look at the whole product range when looking for a new deal. This is especially so if you can stomach a little leeway on payments. Trackers have been avoided like the plague in recent months due to interest rates looking unstable yet all the signs are that rates will be kept on hold for the time being, with the next movement potentially being a reduction. Some are even predicting rates will go as low as 4% by the end of the year to kickstart the economy, in which case trackers could be a lifeline.”